Bretton Woods

Bretton Woods, the United Nations' master plan for orderly international trade, was just a year old. Of the 44 drafting nations, not one had either accepted or rejected the proposals. Forty-three waited for the U.S. to act.

This week final U.S. action was in sight. The-House had already passed a Bretton Woods bill; now the Senate had taken it up. Ahead was a test of two great issues: 1) could international cooperation of a very difficult kind be translated from oratory into practice? 2) could world trade be returned to free enterprise?

Although the discussion was obscured by the trade slang of monetary metaphysics, a surprising weight of world opinion had developed behind the proposals. Bretton Woods would probably be functioning by next year.

Deep Disease. Bretton Woods was prescribed for no passing postwar headache. It was intended to cure a disease whose origins went back at least as far as World War I.

With that war's unprecedented mobilization of national resources to offset blockade, governments learned new economic tricks and developed new appetites for control "in the national interest." Under the pinch of depression in the 1930s. governments manipulated their currencies to shape foreign trade. Counter-manipulation led to government control of imports & exports, and then to still more currency manipulation.

One result: money in world trade ceased to be a free medium of many-sided exchange. It was becoming a device for recording strictly controlled, two-way barter deals. World War II plunged even the U.S. into almost complete import & export control.

Strong Medicine. Obviously, peace would not automatically end the restrictions. Strong medicine was needed to cure a totalitarian economic practice which, uncured, might dry up world trade and lead to government control over domestic as well as foreign commerce.

By itself, Bretton Woods would not restore world commerce to free competition among individual traders. That depended on the nations' attitudes towards such fundamentals as free enterprise and tariff reductions. But the Bretton Woods machinery might remove some of the strongest temptations to nationalized cutthroat competition in foreign trade.

The plan was a compromise between Britain's Lord Keynes and the U.S. Treasury's Harry D. White, with trimmings introduced by others. Its two essential parts:

P:An International Monetary Fund (up to $8.8 billion).

P:An International Bank for Reconstruction and Development (capital: $9.1 billion).

Nations would contribute capital to both the Fund and the Bank in proportion to their relative economic importance. Each nation then would have a vote in administration roughly proportionate to its contributions. In the Fund, the U.S. would put up $2.75 billion (31%) of the money, have 28% of the votes. To the Bank the U.S. would contribute 34.8% of the capital, have 31.4% of the votes.

The Fund was designed to remedy temporary maladjustments in trade. The Fund would set a par value for all currencies in gold or U.S. dollars, require all countries to deal in each other's currencies only at par. A nation may change its currency value as much as 10% without the Fund's okay. But further changes cannot be made over the Fund's objection. If France found herself short of U.S. dollars, she could get them from the common money pool (see chart) instead of restricting her imports from the U.S. France's contributions to the Fund would determine the limit of her total borrowings at any one time. When France later obtained dollars in trade, she could put them back in the Fund.

Plainly, this device would not help in cases where trade was basically unbalanced over several years. Long-range stimulation of foreign trade was left to the Bank, which has been described as "an international Reconstruction Finance Corporation." Its main job would be to guarantee private foreign loans for projects likely to increase the national income of borrowing countries. The Bank would also make direct loans for the same purpose, supplementing but not necessarily replacing such national agencies as the U.S. Export-Import Bank, whose capital is soon to be increased. Russia, for example, might turn to both banks for reconstruction loans.

Patient No. 1. Great Britain needed Bretton Woods more than any other important trading nation, but gagged over the dose. Her classic advocacy of free trade had been not only abandoned but reversed. In self-defense Britain had gone so deeply into trade controls that she reacted instinctively against any plan looking toward an eventual resumption of free trade.

One group of Oxford economists opposed Bretton Woods because it "tended to outlaw discriminatory practices" held to be necessary in Britain's desperate debtor position. The Beaverbrook papers criticized Bretton Woods as a return to an inflexible gold standard. Sharpest attacks came from a "young Tory" M.P., Robert John Graham Boothby, once Churchill's private secretary, who charged that advocates interpreted Bretton Woods as the gold standard in the U.S. and as a flexible system in Britain. With all the weight of his authority, Lord Keynes called Bretton Woods "the exact opposite of the gold standard." In the end, Bretton Woods would be whatever the controlling nations chose to make it.

The world was beginning to realize that Britain had grave reasons for her reluctance. Her overseas debt alone would be more than -L-4 billion by war's end. But nearly all of this debt was locked tight within the sterling area--the British dominions and economic dependencies. For instance, Britain owed India a billion pounds. India wanted dollars to buy in the U.S. But if Britain released dollars, that would result in Britain owing the U.S. instead of India.

The difference was important. Debts within the empire would be easier to handle. Britain hoped to scale them down. Chancellor of the Excheque Sir John Anderson said last April: "It would be contrary to the elementary principles of justice and fair dealing between nations that obligations incurred in this way [i.e., in the common war effort] should be treated as an ordinary commercial debt." The blocked sterling balances seemed likely to become the "war debts" issue of World War II, with the prospect that the whole sterling area might be shut off from free world trade.

Britain did not want to unfreeze such balances with a commercial U.S. loan. Her main hope lay in expanding exports, including some that might be made possible by the recently liberalized U.S. tariff law. Until sterling began to thaw, world trade as envisioned by Bretton Woods was impossible. But without Bretton Woods and a high general level of world trade, sterling would not thaw. Knowing this, Britain, despite her objections, seemed ready to accept Bretton Woods.

The Doctor. The U.S., as the champion of antitotalitarian practices, had the most to gain from Bretton Woods. It would also put up the most money.

Inevitable objections to the cost had been largely met by business endorsement of Bretton Woods, mobilized by Beardsley Ruml's Committee for Economic Development. But opposition, especially to the

Fund, remained. Some economists thought the blocked sterling problem had to be solved before any world plan would work. Allan Sproul, president of the New York Federal Reserve Bank, cried that a general international arrangement would be a "mirage" unless Britain were first restored to financial health.

The fight against Bretton Woods in the Senate was led by Ohio's Robert A. Taft. Last week, seeking unsuccessfully to postpone the whole issue, he centered his attack on the Bank, rather than on the Fund. He called the contemplated scale of lending "wasteful and dangerous," preferred direct relief loans to Britain and other countries (Congress might control such loans).

But Taft was swimming against a strong tide. President Truman had given Bretton Woods an all-out endorsement. To the Democrats was added a large pro-Bretton Woods bloc of Republicans, led by New Hampshire's Charles W. Tobey. Senate Majority Leader Alben W. Barkley, putting on all the pressure he could, pointed out that the House had voted 345-to-18 for the bill. Since Bretton Woods was not a treaty (requiring a two-thirds vote), a simple majority was enough to pass it in either chamber.

Those who placed their hopes for the San Francisco Charter in its "curative" rather than its enforcement provisions pointed to Bretton Woods as the first great practical step. The Fund and Bank might well become one of the "specialized agencies" under general supervision of the United Nations Economic and Social Council. If, through the Fund and Bank, the United Nations could end the war of the exchanges, they would have gone a long way toward building a secure world.

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